E-Z-GO 2009 Annual Report Download - page 76

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Textron Inc.
Assets Recorded at Fair Value on a Nonrecurring Basis
The table below presents the assets that are measured at fair value on a nonrecurring basis that had measurement adjustments in 2009 and 2008.
These assets were measured using significant unobservable inputs (Level 3) and include the following at the end of each period in which they
were measured at fair value:
January 2, January 3,
(In millions) 2010 2009
Manufacturing group
Goodwill $ 61
Finance group
Finance receivables held for sale 819 $ 1,658
Impaired finance receivables 686 139
Other assets 126
Total assets recorded at fair value during the year $ 1,692 $ 1,797
Goodwill — In the fourth quarter of 2009, we performed our annual goodwill impairment test using the annual operating plan for 2010 along with
its long-range forecast that was submitted to management in connection with our annual strategic planning process. This information indicated a
more delayed recovery from previous estimates for the Golf & Turfcare reporting unit, as the economic recovery is proceeding slower than
originally anticipated. Golf membership and revenue per round of golf played have continued to decline in North America, and new course
construction has been significantly delayed in the rest of the world, resulting in a negative impact to the Golf & Turfcare reporting unit’s outlook.
Using discounted cash flows, we determined that the fair value of the Golf & Turfcare reporting unit had dropped to a level below its carrying
value. Accordingly, we performed the required Step 2 calculation to determine the fair value of the reporting unit’s assets and liabilities in order
to perform a purchase price allocation. In performing this analysis, we used assumptions that we believe a market participant would utilize in
valuing the assets and liabilities of the business. Valuation methods used included the income and market approach depending on the nature of
the asset/liability. Our calculation supported a goodwill amount of $61 million and required the impairment charge to reduce the carrying amount
by $80 million.
Finance Receivables Held for Sale — Finance receivables held for sale are recorded at the lower of cost or fair value. Finance receivables held for
sale are recorded at fair value on a nonrecurring basis during periods in which the fair value is lower than the cost value. At January 2, 2010,
finance receivables held for sale were recorded at fair value with a $104 million valuation allowance. In the fourth quarter of 2008, upon initial
reclassification of these receivables to held for sale, we estimated the fair value to be $293 million less than the carrying value, net of the
$44 million allowance for loan losses attributable to these portfolios. This net adjustment was recorded within special charges in 2008. See
Note 5, regarding the change in classification of certain finance receivables in 2009. The majority of the finance receivables held for sale were
identified at the individual loan level. Golf course, timeshare and hotel mortgages classified as held for sale were identified as a portion of a larger
portfolio with common characteristics based on the intention to balance the sale of certain loans with the collection of others to maximize
economic value. The decrease in the fair value of the finance receivables held for sale was $14 million in 2009.
There are no active, quoted market prices for our finance receivables. The estimate of fair value was determined based on the use of discounted
cash flow models to estimate the exit price we expect to receive in the principal market for each type of loan in an orderly transaction, which
includes both the sale of pools of similar assets and the sale of individual loans. The models we used incorporate estimates of the rate of return,
financing cost, capital structure and/or discount rate expectations of current market participants combined with estimated loan cash flows based
on credit losses, payment rates and credit line utilization rates. Where available, the assumptions related to the expectations of current market
participants are compared with observable market inputs, including bids from prospective purchasers of similar loans and certain bond market
indices for loans of similar perceived credit quality. Although we utilize and prioritize these market observable inputs in our discounted cash flow
models, these inputs rarely are derived from markets with directly comparable loan structures, industries and collateral types. Therefore, all
valuations of finance receivables held for sale involve significant management judgment, which can result in differences between our fair value
estimates and those of other market participants.
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